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Discussion in 'Business Operations' started by KenH, Jan 15, 2003.
If so, can you share your experience??
Got audited a few years ago, the irs agent called to tell me that we owed about 10K and what time to meet him at his office. I called our CPA he contacted the agent with the time that he should be at his office the agent spent all day going though records and left with around 300 dollars. No way would I go to the audit without a CPA or at least the tax preparer you used. My uncle had a garbage route that got audited, the agent asked really simple questions, # of children, #of employees, years in business, wanted to know if they deposited all of the cash they recieved of if they spent some of it. My aunt told him that they used the cash for expenses and deposited the checks. WRONG ANSWER, since they didn't deposit all of the business proceeds into the bank they didn't have any "proof" as to what the "actual" income was so the agent just tacked an extra 20K onto their income for the year and taxed them accordingly, plus the usual penalties and interest.
We were audited by the IRS for 2000.
Auditor was in our office 4 days, with our CPA.
Ended up with a 'no change' audit report.
Over last 15 years, been audited by state sales tax people, WC, Insurance company, labor department. Never had to pay much after each audit, if anything.
Pays to keep good records and not try to flaunt the law.
I have always heard about audit horror stories, but never knew anyone who had been through it. If everything is on a computer, why would they spend so much time on an audit(ie 4 hours in your office).?? I can show someone my whole business in about 1/2 hour (QuickbooksPro).
Thanks for all the info.
In our case our CPA had all of the information on his computer and monthly financials on paper, but the agent wanted to see the "paper trail" ie reciepts, bank statements, check books, invoices, vehicle registrations (taxes). Business credit card statements, etc. I have known people that had to produce birth certificates to prove they had the children that they were claiming.
How do they know it is all there. Entries in the computer can be fabricated (in the case of expenses) or left out (in the case of income).
The auditors want verification, see the receipts, etc.
If they ask for a few receipts based on your computer records and they match up, it will be likely that they are more easily satisfied, if they don't get a good answer to the first question, they will ask more.
Like John said, keep good records, don't flaunt the rules, and an audit is nothing to lose sleep over, rather it is an inconvenience.
If you are nervous, hire your CPA or tax preparer to go to the audit for your. Your involvement can be minimal.
That can also insulate you somewhat from giving "dumb" answers. Don't lie, but don't give a 50 word answer to a yes or no question. The more you say, the more likely that you could say something that will lead to a problem.
Been audited twice. My advice is have good records and a CPA who is experienced. Didn't pay any additional taxes either time. My experience is that if you have the records to back it up and a CPA who strongly defends your position things will be fine.
We have been audited serveral times by the state. Each time we came out clean. Our accountant had the audits changed from our office to hers. This was to keep them from requesting more information than they needed. I didn't even have to be present for some of them. As John Allin stated, keep good records and keep it honest and you'll be fine.
We were audited by Unemployment Insurance a few years ago. No real problems other than some really minor things, but we had to document quite a few transactions.
The biggest things were checks written to vendors that had names that sounded like individuals, and we had to prove that they were vendors and not employees.
An Example our insurance agency is Culbert-Davis Insurance. When we set up our vendor file, we simply set it to write the check to Culbert Davis. Since then I have been very careful to make sure that the name we enter for Vendors is complete and even add to the name if needed to reflect that they are not employees.